FTSE

The FTSE is one of the worst major stock indices in the world, down about 21% which is not really all that surprising when you consider that it contains a good number of the large integrated oils like Royal Dutch and British Petroleum. Beyond that there are also a good number of banks that have fared only so so.

At the lows we were where we were 3 years ago, and we are pretty sure that we are on our way to, at the very least, 4800 as that is the start of this last leg up (wave C of an A-B-C off the lows of 2009). The question is simple how we are going to do that. I suspect that any moment now we could enter into a 3d wave and accelerate down. That would be my most favoured outcome.

There is , however, also a possibility that the downward acceleration will be delayed by several months as we complete a much more complex wave 2 or B. In that scenario a series of 1-2s would become a b wave in an a-b-c for wave 2. An upside target would be around 6300. Then the index should resume its drop. A similar delay is possible in the DAX.

Recent experience with Mr. Draghi suggests that market participants still firmly cling to the myth of Central Bank omnipotence. Perhaps just a few words are needed to extend the “good” times. We do prefer the straight down from here scenario (in blue).

The usual then, May 27th, and now charts of the NYSE. This is one of the many “wedges that we identified over the past few months. Unlike the Nasdaq, which still has the possibility of going slightly higher, this wedge is so clean, tidy and perfect that we would be very surprised if the top was not already in. We remain open to the notion that the entire structure from the October low is a wedge. Alternatively it is not impossible to assume a large triangle followed by a wedge. In both cases the structure is complete.

Furthermore it is not that hard to see an initial 5 wave leg down followed by an a-b-c corrective wave 2. I cannot get charts in sufficient detail to properly make that determination with a lot of confidence. Nevertheless it does not require a leap of faith and in the overall context of this index it is reasonable to conclude, at least for the NYSE, that the bear market started on the 21 of May 2015 at 11254.87. The RSI and MACD appear to be in agreement.

There are other wedges like this that are equally clear. The FTSE is another index that is identical to this one but has already come down much faster. Both traded just a few days ago at levels they were at more than a year ago! The FTSE actually two years ago.

Another nice example of a well formed wedge is in the FTSE, London. Here wave 4 seems to have taken the better part of a year, then we get the spurt up starting in October for the wave 5 wedge. Here again not everything is absolutely clear. The wave 4 could have ended in January as a triangle, which pushes the whole structure forward. That is a little unlikely given that most other spurts or thrusts also start in October. If this count is correct the top could already be in and if it is not there are only maybe 20 to 30 points to go.

These charts with all the annotations become very messy very quickly and , for those that are not really interested in the finer points of EW, rather annoying as well. It helps a little if you click on them to enlarge them. The “executive summary” reads as follows;

The FTSE is near completion of the first two legs, A and B, of a multi year “flat”. Once complete wave C should follow and take the index below the low of A. The high point of B is typically found where sub waves a and c are equal in magnitude. This should occur in close proximity to the starting point of A – that is why the whole thing is called a flat!. Essentially that is at the double-top level. Wave B itself should have a 5-3-5 structure and certainly wave c of B must subdivide into 5 waves.

In the detailed chart which does not show the entire c of B leg due to the 3 year limit, wave 3 is the extended wave and 4 a triangle. There are numerous variations but they all boil down to the simple fact that wave 5 starts at one of the 3 low points since October of last year. Again, typically, when the 3d wave extends there is a tendency towards equality between waves 5 and 1 (blue arrow). RSI and MACD are also turning so EVERYTHING suggests a top, soon.

The one and only, remotely possible alternative bullish interpretation would be that this is not a B-wave and instead it is a 5th wave of the bull that is forming a wedge. That is extremely improbable and in any event does not project all that much higher (7400 maybe)!. Below is an example of what a wedge would look like;